The dividend yield formula, in its three meaningful variants.

1. The base formula

Dividend yield, in its simplest form, is annual dividend per share divided by share price:

Yield = D / P

Where D is annual dividend per share and P is share price. Expressed as a percentage. The interpretation: an investor who buys one share at price P and holds it for one year will receive D in dividends, an income return of Yield percent, before any capital gain or loss.

2. Trailing yield (TTM)

The trailing twelve-month yield uses the sum of the four most-recent quarterly dividends (or the most-recent annual dividend for non-quarterly payers) divided by the current share price.

Yield_TTM = D_TTM / P_now

This is the figure most brokerage screens display. It is a hybrid: the numerator reflects the past, the denominator reflects the present. The hybrid is useful for comparing across stocks at a single moment but contains a known distortion when a company has recently raised or cut its dividend — the trailing four quarters do not yet reflect the new run rate.

3. Forward yield

The forward yield uses the projected next-twelve-months dividend per share divided by the current share price.

Yield_FWD = D_NTM / P_now

For a company on a stable annual increase pattern, the forward dividend can be projected by applying the trailing growth rate to the most-recent annual figure. For companies that have announced a dividend change for the upcoming period, use the announced figure. Forward yield is the right variant for forward-looking decisions because it reflects the run rate the buyer actually receives.

4. Yield on cost

Yield on cost uses your cost basis per share as the denominator instead of current price.

YoC = D / Cost basis

This is the only yield variant that measures what your own position earns. It does not depend on current market price; a stock you bought ten years ago at £20 that now pays a £1.50 dividend yields 7.5 % on cost regardless of where the share trades today. For long-term holders of growing-dividend stocks, yield on cost is the cleaner measure of accumulated income performance.

5. Worked example: trailing vs forward vs YoC

You bought 500 shares of a UK utility in 2018 at £6.40 per share, total cost £3,200. Trailing twelve-month dividend (the four 2025 quarterlies): £0.32 per share, total £160 of TTM income. The company has just announced a 6 % increase taking the 2026 dividend to £0.34 per share. Current share price: £7.85.

• Trailing yield: 0.32 / 7.85 = 4.08 % — what brokerage screens show.
• Forward yield: 0.34 / 7.85 = 4.33 % — what a new buyer at £7.85 will actually receive over the next year.
• Yield on cost: 0.34 / 6.40 = 5.31 % — what your existing position earns relative to what you paid.

Three different yields, all defensible, all answering different questions.

6. Yield in revenue (the dollar-income version)

For portfolio-level reporting, total annual income matters more than the yield ratio. Annual income equals the sum across positions of (dividend per share × shares held). The dividend yield calculator on the front page exposes this number when you supply the “shares held” input. Income-equity portfolios are typically managed to a target annual income figure rather than to a yield percentage; the percentage is a planning tool, the dollar figure is the operational target.

7. The Gordon constant-growth extension

The Gordon Growth Model extends dividend yield into a valuation framework: if a dividend grows at constant rate g indefinitely and the required return is r, then fair value is D₁ / (r − g). Rearranged, the implied growth rate at a given price and required return is r − D₁/P. The model is a long-run abstraction, not a price target, but it provides a useful sanity check: a 4 % yield with a 3 % required-return premium implies 7 % growth must continue indefinitely to justify the price — a demanding assumption that highlights when a yield is “cheap” or “rich” relative to plausible growth.

8. The yield gap framework

The yield gap is the difference between the average dividend yield on a market index and the yield on a long-dated government bond. Historically, equities yielded more than bonds (compensation for equity risk); since the 1958 inversion in the US, the relationship has reversed for most of the period, with bonds yielding more than equities until very recently. The yield gap matters for income investors because it frames the relative-value decision: if 10-year gilts yield 4.2 % and the FTSE 100 yields 3.8 %, the income-only case for equities depends on dividend growth making up the gap. The yield-on-cost framework is what lets that case work over long horizons.